All in the Delivery

Travel agencies have all but disappeared thanks to the convenience of online purchasing through travel websites such as Expedia, Travelocity and Priceline. Video rental stores were thriving in the 80s, 90s and 00s, but most have disappeared in the last three to five years due to the success of video streaming services such as Netflix, Google Play and iTunes.

Likewise, newspapers and print media have either embraced the digital format or have had to adjust to a sharply declining readership. That is not to say that the feel of an actual newspaper has lost its appeal; it is just that the ease of digital delivery is making traditional print a thing of the past.

As social and technology trends alter the dynamics of these industries, so too are the effects felt by those in the insurance sector.

The adoption of online insurance continues to grow and is fundamentally changing an industry that, since its inception, has remained virtually untouched. Today in the United Kingdom, roughly 50% of all personal lines business is done online. Although the adoption in Canada and the United States is not as strong, there is a similar movement occurring here.

Comparison sites, also known as aggregators, are a big part of the online explosion in the U.K. In 2011, Google Inc. purchased aggregator BeatThatQuote Ltd. Google’s move into the insurance space, though a cause concern for the other 15-plus U.K.-based aggregators, provides confirmation that online aggregation sites are here to stay.

Realistically, it may take a couple of years before online sales overtake the traditional selling channels, but it is now only a matter of time. Canadian aggregators such as Insurance Hunter Services Inc. and Kanetix Ltd. are well-positioned to become as embedded in the Canadian insurance market as their counterparts in Britain without coming close to saturating the market.

British aggregators have been successful by utilizing a combination of television advertising, Google Adwords and search-optimized website designs to ensure a strong and dominant brand presence. Will Google decide to build upon their success in the U.K. and make similar moves into Canada and the U.S.? And what effect would that have on the Canadian market?

For one thing, insurer branding becomes less relevant when a consumer utilizes an aggregator. Most aggregators, while giving the consumer the ability to compare different insurers head-to-head, place the majority of the comparison emphasis on price. As the aggregation approach garners more traction, price will increasingly become the key differentiator between insurer offerings.

Direct writers will continue to fight the aggregators by selling and advertising their brand individually but, without comparison capabilities, consumers will be wary of whether or not they are receiving the best possible price.

Those who argue that combined ratios will suffer without the personal interaction of a broker or agent at the time of purchase will be surprised to know that companies in the U.K. were able to maintain their combined ratios while at the same time growing their book by more than 10%.

I spoke with a broker recently that has been successful in using a strategic online offering to substantially grow his business over the last few years. Unlike many of his counterparts, who are seeing their books erode, he has found the shift towards online purchasing has allowed him to sell into a larger prospect base and attract clients who prefer virtual interaction over face-to-face or phone meetings. He recounted a conversation that he had with a group of brokers that were critical of the online approach. They commented that the online brokerages were starting to take market share away from those who have not yet made the leap to online commerce.

It was suggested that brokerages should stay away from the online space and grow their business by increasing community involvement and doing things such as putting on an annual barbecue.

While being a part of the local community is important, brokers cannot have their heads in the sand and rely solely on what has worked in the past. Nor can they rely on their associations and insurers to save them from extinction by providing policy or products that will give them a competitive edge against the directs.

Insurers may feel that if the directs take a large enough hit on their combined ratios that the business will fall back to the broker distribution channel. The reality is that once the aggregators have gained a solid foothold, they will be the ones in control.

At a recent event, I spoke about how it is important for brokers and insurers to understand that although they are in the business of insurance, they are even more so in the business of insurance delivery. I strongly believe that focusing and acting on this perspective will position them for success.

Some brokerages and insurers may argue that they are in the customer service business which, although being a crucial business practice, is only part of the puzzle. Being really, really good at the delivery itself will facilitate the sales process and provide good customer service.

During my presentation, I used the example of Domino’s Pizza and how it understood itself as being in the pizza delivery business. Because of this understanding, the company has become the number 1 pizza delivery company in the world. It has been able to accomplish this by embracing and adopting technology that enables a highly efficient delivery infrastructure.

At a minimum, it is clear that brick and mortar businesses must adapt and embrace the online world. Those who do not adapt will face significant pressure as other, more tech-savvy competitors will happily gobble up their business.

The real question is whether the aggregators will dominate this market as much as they do in the U.K., and if so, when will this change occur? Who will win and who will lose is yet to be seen, but those companies focused on delivery will be in the best position to grow their business and compete. Brokers and insurers need to understand that they are in the business of insurance delivery and they need to take measures to embrace the movement towards digital interaction as the preferred way of doing business in an ever-growing online world.